Overview of CDM market

Ha Gyung-AeKorea Energy Management Corporation

Korea-Japan CDM workshop29 September 2005

Outline of presentation

Status of CDM Global carbon fund Demand and supply of CERs Conclusion

Status of CDM

More than 1 % of Annex I Parties’ 1990 CO2 emissions 20% of the estimated

GHG reductions come from 5 N2O reduction projects

LFG projects account for 11% of the reductions

– 6 F-gas projects contribute 15%

Expected emission reductions from five N2O reduction projects are more than the combined emission reductions expected from 200 hydro, wind and biomass/bagasse projects

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10

20

30

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50

60

70

80

90

100

Sep-

03

Dec-

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Feb-

04

May-

04

Sep-

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Nov-

04

Mar-

05

May-

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Sep-

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Mt/

year

F-gas

Other

gas

Electricity

Landfill

and N2O

CDM portfolio (Sep 1 2005)

Source: OECD

Percentage of annual credits, Sep 2005

Sinks3%

Other1%

Transport2%

Other CH4 reductions

8%

Manure and wastewater

5%

LFG capture11%

(Avoided) Fuel switch

3%Cement

2%

Energy eff, heating and

drying5%

Electricity Generation

(gas)6%

Renewable Electricity

Generation20%

F-gas15%

N2O 19%

Source: OECD

Number of CDM projects (Sep 1 2005)

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500

Sep-04 Nov-04 Mar-05 May-05 Sep-05

# of p

rojec

ts

Electricity projects

Landfill gas projects

F-gas + N2O

Other projects

More than 480 projects in the pipeline 16 registered as CDM 11 requested

registration 212 initiated the

validation process

Almost half of all proposed CDM projects are in the electricity sector mostly small renewable

energy projects occurring in 40 countries

their share in the estimated GHG emission reduction is only 20%

Source: OECD

Number of projects by type, Sep 2005

Renewable electricity projects that are the most numerous in the CDM portfolio

HFC and N2O reduction projects that are low-cost often extremely large(generating up to 10 million CERs/year)

LFG projects that represent the 3rd share of GHG reduction credits and a considerable number of CDM projects

F-gas, 6

Renewable Electricity

Generation, 230LFG capture, 45

N2O , 5

Other CH4 capture

26

Electricity Generation (gas),

11Energy eff, heating and drying, 58

Cement, 6

(Avoided) Fuel switch, 25

Sinks, 12 Other, 3Transport, 9

Manure and wastewater, 36

Source: OECD

Geographical distribution of the CDM projects India and Brazil host

the largest number of CDM project 126 CDM projects in India &

87 projects in Brazil

53 countries host CDM projects Half of all proposed CDM

projects is located in Asia and another 40% is in Latin America

AOSIS host 9 CDM projects representing 0.7% of currently expected credits

Korea hosts only 2 projects(12% of the total estimated GHG emission reductions)

China7%

India27%

Korea12%

Africa6%

Middle East0%

Europe0%

Brazil18%

Other Latin America

19%

Other Asia11%

Percentage of annual credits by region

Source: OECD

CDM and JI demand

Size of carbon market

So far in 2005 (mid August)

– EU ETS: ~ 65 Mt, ~ €900 million

– CDM and JI: ~55 Mt, ~€300 million

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1 000

1 500

2 000

2 500

2000 2001 2002 2003 2004 2005

€ m

illion

CDM JI EU ETS Other Source: Point Carbon(Forecast)

Who are investing?

National governments– The Netherlands, Austria, Sweden etc

European companies– Shell, Nuon, Essent etc

Japanese companies– Sumitomo, Marubeni, J-Power etc

Carbon funds– World Bank funds, European Carbon Fund

etc– Companies and governments invest in

carbon funds

Carbon funds/program for CDM - 1

Name Size Initiative by

Focused area

WB- Prototype carbon fund

180M US$ World Bank

WB – Community Development Carbon fund

128.6MUS$ World Bank Small RE/EE and waste to energy

WB Netherlands CDM facility

180M US$ World Bank Small reforest., agri. and LL

WB- Italian Carbon Fund

80M US$ Italy RE/EE, methane capture, etc.

IFC Netherlands Carbon Facility

44M Euro IFC & Netherlands

RE/EE, fuel switch, etc.

Netherlands European Carbon facility

10M ton of ERs

IFC, IBRD & Netherlands

RE/EE, fuel switch, etc.

Multilateral Carbon Credit Fund

50M – 150M Euro

EBRD Industrial energy efficiency, RE etc.

Source: UNEP, IETA & UNEP RISO, Carbon Market Update

Carbon funds/program for CDM - 2

Name Size Initiative by

Focused area

Austrian JI/CDM Programme

2004-11M2005-24M2006-36M

Austria CHP, RE, Landfill gas etc.

KfW Carbon Fund 50M Euro KfW, Federal German Gov.

No Focus. But with sink projects

EcoSecurities Standard Bank Carbon Facility

10M Euro Demark, standard Bank, EcoSecurities

Small reforest., agri. and LL

SICLIP 2002-2012 SEK 200M Swedish Energy Agency

RE/EE priority

Belgian JI/CDM Tender

10M Euro Belgian Federal Government

Except nuclear and sink

Finnish CDM/JI Pilot Programme

20 M Euro Finnish MoFA & Env. Institue

Small scale RE

Rabobank-Dutch government CDM facility

10M ton of CO2e

Rabobank Carbon Procurement De.

All type of CDM projects

Source: UNEP, IETA & UNEP RISO, Carbon Market Update

Carbon funds/program for CDM - 3

Name Size Initiative by

Focused Area

Japan Carbon Finance, Ltd

141.5M US$ JBIC/DBJ All types

ICECAP 40-50M ton of CO2e

Icecap Ltd (owned by Cumbria Energy, Less Carbon & Investec Bank)

All type of JI & CDM except LULUCF and nuclear

GG-CAP Greenhouse Gas Credit Aggregation Pool

72M Euro Natsource Asset Management Corp.

Agreiculture, energy efficiency, fugitive emissions, industrial process etc.

ADB CDM Facility CDM transaction support for ADB-financed projects

ADB RE, Energy Efficiency, Coalmine Methane, Agriculture/ForestrySource: UNEP, IETA & UNEP RISO, Carbon Market Update

Kyoto Gaps

Difference between BAU emissions and the targets in the Kyoto Protocol, aggregated for the period 2008 to 2012

Potential large over-supply, if Russia and Ukraine can sell EU can probably meet its targets by internal transfers

-4 000-3 000-2 000-1 000 0 1 000 2 000 3 000

Russia

Eastern Europe

Ukraine

Canada

Japan

Western Europe EU 15

Mt CO2e Source: Point

Governments’ plans for CDM & JI, Mt

0 20 40 60 80 100 120

Iceland

Sweden

Norway

Germany

Finland

France

Switzerland

Ireland

Portugal

Denmark

Austria

Belgium

Canada

Italy

Netherlands

Japan

Spain

Current budgets Further plansSource: Point Carbon

Supplies from Russia and Ukraine In order to be able sell their surplus, Ukraine and Russia

will have to fullfill the reporting and registry requirements under the Kyoto Protocol

The communist period left their emissions statistics in a mess

Preparation of inventories have been underfunded but have lately accelerated with help of funding from the EU

Any sales will depend strongly on whether there will be an international agreement for the period post-2012 as it could mean that the countries would rather bank their allowances for a later period

Russia and Ukraine eventually will meet the eligibility criteria, but this will take years of preparation

Meeting the eligibility criteria and setting up the framework to facilitate trading will probably take until 2007, at the earliest

An agreement for post-2012 could dampen Russian and Ukrainian supplies

At least for the next 3 years, it will remain very unclear what volumes of hot air that will eventually hit the market

Demand after planned measures

Difference between BAU emissions and the targets in the Kyoto Protocol, when taken into account current planned measures and goventmental credit purchase programmes, aggregated for the period 2008 to 2012

Assumes that the allocations in the EU ETS remains at the level of Phase 1

Assumes that credits (CERs/ERUs) can be purchased for €7/t

-4 000 -3 000 -2 000 -1 000 0 1 000 2 000 3 000

Russia

Eastern Europe

Ukraine

Canada

Japan

Western Europe EU 15

Mt CO2e Source: Point

CER supplies, from CDM

Estimated CER supplies from on-going project registered in Point Carbon’s database

Expected CER supplies assuming current growth rates are sustained until 2011 and then fall back to a degree

Accumulated supplies in 2012: ~700 Mt Because of the long implementation time, CER supplies will

exceed 1 Gt, even if we assume a much higher growth rate The supplies will be less than is needed to meet the current

on-going purchase programs

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2004 2005 2006 2007 2008 2009 2010 2011 2012

MtC

O2e

On-going Future

Expected key events2006 Allocation in the EU for Phase 2 Japanese and Canadian framework become clearer The first Eastern European countries become eligible for

emissions trading2007 Slow progress in the negotiations of a post-2012 agreement Ukraine and Russia become eligible for emissions trading The framework for JI and AAU trading becomes clearer, in some

countries2008 The first AAUs hit the market Election of a new US President Slow progress in the international negotiations2009 A post-2012 agreement is signed Increasing liquidity in all markets except for AAUs which tend to

be dominated by governmental players

Conclusion No. of CDM Projects has been significantly

increased, especially small renewable & energy efficiency projects – but their share of total expected credit is small

The size of CDM market is growing due to active investment from national governments, companies and international agencies etc.

There are uncertainties associated with price of CERs

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